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While equity normally has an incentive to contribute new funds, some plans seek to add incentive. The Ninth Circuit Bankruptcy Appellate Panel rejected a plan which provided the contributors of new funds with a repayment stream before holders of claims would be paid in full. In the BAP's view, this was only a contribution of a loan which was likely to be repaid with interest.
The "substantiality" requirement stems from a concern that nominal contributions may not be used to shift the benefit of the possible appreciation in the debtor's assets from unsecured creditors to equity.
The Seventh Circuit's dictum opinions originated a concept that "substantial" involves a relationship with the amount of debt in the case, a concept that many opinions have followed but others have properly rejected has having little or no theoretical basis or relationship to the origins or purposes of the new value corollary. In Ambanc, the Ninth Circuit rejected as de minimis "a proposed contribution of one-half of one percent of each of the various quantities judicially recognized as relevant to the substantiality comparison." In Woodbrook, the court affirmed denial of confirmation where the $100,000 of new value was about 3.8% of the $2.6 million of total unsecured debt, although it noted that substantiality does not necessarily depend on any mathematical relationship. In Snyder, the circuit affirmed a finding that $30,000 in new capital, which was 4.5% of the total amount due unsecured creditors was not substantial (the disparity was "extreme"). Although not couched as such, the Tenth Circuit's affirmance of the lower courts' view in Unruh that contributions of $700 from post-petition wages in one case and exempt tools in the other did not satisfy the "new value" corollary appeared based on the "substantial" requirement. The district court in Sovereign Partners rejected a $135,000 contribution which was only 3.6% of the unsecured claim of the bank, without reference to other claims. In a jurisdiction using the relationship between new value and claims as a determinant, payment of less than 10% of the unsecured debt appears insubstantial based on the cases.
Yet, even the Seventh Circuit recognizes the mathematical relationship between the
